Two months ago, maritime shipping stocks FreeSeas Inc. (NASDAQ:FREE), NewLead Holdings Ltd (NASDAQ:NEWL), and DryShips Inc. (NASDAQ:DRYS) were all the rage; traders couldn't get enough of them. The spark for the new strength from DRYS, NEWL, and FREE was a strong - and somewhat surprising - bounce in Baltic Dry Index, which roughly measures the daily charter rate for maritime shipping vessels. It had risen from a low of 698 at the beginning of the year to above 1000 by July to a peak of 2113 in late September. Since these shipping companies had seen a tripling (in less than a year, mind you) of the prices they could charge customers, the rebounding interest in these stocks was certainly understandable. FreeSeas shares more than doubled in value during that time. DryShips nearly did the same. While NewLead Holdings Ltd didn't actually dole out any significant gain, it did draw a lot of new interest during that hot period as a potential "the next one to take off" idea.
As is so often the case with the market, however, the strength from FREE, NEWL, and DRYS just wasn't meant to last. That's because the rise of the Baltic Dry Index wasn't built to last either. It has since fallen back to a value of 1500, and pulled the likes of DryShips, NewLead Holdings, and FreeSeas with it.
Oh, and now may be the exact best time to step into these stocks, if you were lamenting not getting in early on in the previous runup.
It's still a speculative idea to be sure, but not a crazy one. Though technically still falling, the Baltic Dry Index is getting comfortable with a value around 1500, and could/should stay the barring a major economic disruption. Indeed, some of the luckier and more skilled shipper were able to "lock in" long-term charter rates when the Baltic Dry Index (or BDI) was at or near its peak. Even at those elevated rates, not all maritime shipping companies will be able to operate at a profit. Some will though, and they're all getting closer. And, should the BDI start to rise again and perhaps even exceed 2113 (a reasonable possibility), a whole slew of shippers will be at or near breakeven levels, and a few of them will even be sustainably profitable. That's good for all these shippers including DryShips, NewLead Holdings, and FreeSeas since - and no pun intended - a rising tide lifts all boats.
There's another reason now would be an ideal time to wade into FREE, NEWL, and DRYS, though, and that's the fact that shipping-mania has subsided. The trade was all the rage back in August and September, and therefore very crowded. The crowd's roar has died down to a whisper now, which means stock prices aren't frothy and you can sneak in before the next runup.
Again, there's some risk here; if the BDI slides under 1500, that could spark a selling avalanche. With just the slightest rise in the Baltic Dry Index's value though, these stocks could give us a repeat performance of this summer's rally. It's a decent risk/reward proposition.
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